The mutual fund vs. gold debate has been around for a long time now and rightly so! Investors often find it confusing to pick between the attractive returns of mutual funds and the solidity of gold. Additionally, it should be mentioned that gold investments are automatically linked with abundant sentimental value in a country like India. People usually save up for gold from a very young age and this has remained unchanged. So which one should you opt for? Investors feel that either or will not work in this scenario. You should diversify your portfolio for investments across fixed income and secure options like PPF, FDs and the like along with including some high-earning but comparatively riskier options like mutual funds and stock investments. You should also include some gold if possible, in order to maintain a healthy portfolio balance. The proportion of allocation to every investment type depends upon your own risk profile, investment goals and other factors.
Investing in gold comes with several advantages. You can buy physical gold in coins, bars, jewellery and ornaments. You can buy various carats, sizes and even virtual gold or gold bonds if you wish. Gold is a readily tangible asset and even digitally, it is simply a click away. Gold also has higher liquidity. Physical gold can be sold anytime. In fact, various platforms also offer early gold redemption to investors if they do not desire physical gold upon delivery. With gold, you only have to keep checking the daily value and sell/buy as per your needs. You do not have to undertake in-depth research into any commodity. You also have to check the overall authenticity and genuineness of the gold that you are buying however.
The disadvantages of gold include the bevy of added charges, i.e. initial investment cost including making charges and so on. The price is quite high, topping off at more than Rs. 50,000 and upwards for only 10 grams. You cannot buy in large quantities most of the time. Digital platforms however are a godsend, enabling investments at lower prices. The making charges may be 10% of the total value for physical gold at times and this is not redeemable if you sell gold. Gold investments do not pay additional returns or dividends. You can however track gold prices on a regular basis and sell at a higher price than what you purchased gold for, in order to get additional investment value or returns. Digital gold does not have too many risks although physical gold has risks of loss, theft, damage and storage aspects. Mutual fund investments on the other hand, help you stay invested in equities and bonds. You will have dedicated and professional portfolio management courtesy the fund manager. These funds ensure good diversification, i.e. they invest throughout various asset classes like bonds, equity, commodities, government securities, gold and even cash. The initial investment is lower as opposed to buying gold and liquidity is decent although lesser than gold. These funds may serve financial goals better in the short, mid and long term. ELSS plans offer deductions up to Rs. 1.5 lakh under Section 80C and hence you get tax efficiency. The overall costs are also lower in case of mutual funds. The risks are of course higher and funds should be chosen with care as a result.